Main Residence Exemption valuations under s118-192.
When a home stops being wholly exempt — because it starts earning income, or because part of it always did — the CGT calculation needs a market value at a specific moment. Section 118-192 of the ITAA 1997 deems the property to have been acquired at market value on the day it was first used to produce income, and that figure has to come from an independent valuer.
Quick answer
Where a main residence has also produced income, the exemption is apportioned rather than lost. ITAA 1997 s118-192 can deem the property acquired at market value on the day income-producing use began, and that valuation sets the cost base. We prepare the s118-192 and apportionment valuations accountants need. Fixed fees from $440 incl. GST.
What the s118-192 rule does
Section 118-192 applies when a dwelling that was your main residence — and would have been fully exempt — is first used to produce income after 20 August 1996. The law deems you to have acquired the dwelling at its market value on that date. Everything before that day is exempt; everything after is subject to CGT on the deemed cost base. Without a valuation at the changeover date, there is no defensible cost base to work from.
The provisions that matter
Main residence work sits across several interacting sections. Which one applies changes the effective date, and therefore the valuation we prepare.
- ITAA 1997 s118-110 — the basic main residence exemption.
- ITAA 1997 s118-145 — the absence rule (the "six-year rule") for a dwelling treated as your main residence while rented.
- ITAA 1997 s118-185 — partial exemption where a dwelling was your main residence for only part of the ownership period.
- ITAA 1997 s118-190 — apportionment where part of the dwelling was used to produce income.
- ITAA 1997 s118-192 — the deemed market-value acquisition on first income-producing use.
When you need an apportionment valuation
These are the situations that bring accountants to us for a main residence valuation:
- A former home converted entirely to a rental property.
- A home with a granny flat, home office or consulting room that produced income.
- A dwelling on land larger than two hectares, where only part qualifies for the exemption.
- A property that moved in and out of main residence status more than once.
- A six-year absence rule claim that has expired and needs a cost base established.
- Subdivision of the main residence block, requiring apportionment between the parcels.
Establishing the changeover value
The effective date is usually years in the past, so the report is a retrospective valuation in method: contemporaneous comparable sales, a current inspection, and evidence describing the property as it stood at the changeover date. Where an apportionment is required we also measure and document the floor area or land area attributable to the income-producing use.
- Comparable sales settled around the first income-producing date.
- Lease agreements, rental statements or advertisements fixing the changeover date.
- Floor plans and measured areas for partial-use apportionment.
- Council records and building approvals for any structural change since.
What your accountant receives
The report states the market value at the deemed acquisition date and, where relevant, sets out the apportionment percentage with the workings behind it — so the CGT calculation can be reproduced by anyone reviewing the file.
- Market value at the first income-producing date, clearly stated.
- Apportionment basis and percentage, with measured areas.
- Comparable sales schedule with adjustments.
- Signed certification and statement of limitations.
How it works — five steps
Worked example: a former home first rented in 2018
Illustrative example
A dwelling is bought in 2012 and lived in as the main residence. In 2018 the owner moves interstate and rents it out. It is sold in 2026. The purchase price is not the cost base.
- Because the dwelling would have been fully exempt had it been sold just before it first earned income, s118-192 applies.
- That section deems the owner to have acquired the dwelling at its market value on the day the income-producing use began — the 2018 date, not the 2012 purchase.
- So the effective date for the valuation is the first day the property was used to produce income, which is usually the lease commencement rather than the day the agent was engaged.
- We inspect in 2026, establish the property’s 2018 condition from the lease, the entry condition report and the listing, and analyse sales settled around the 2018 date.
- The apportionment of the gain then runs from the 2018 deemed cost base over the ownership period, and the absence rule under s118-145 may cover part or all of the rental period separately.
- Both the deemed acquisition value and the days of income-producing use go to the accountant; we provide the first, they calculate the second.
The trap. The date that matters is one nobody records as an event. There is no contract, no settlement and no notice — just the day a tenant moved in, years ago. Finding it in the lease file is often the hardest part of the engagement.
This scenario is constructed to illustrate the method and the sequence. It is not a client matter, contains no client information, and is not a prediction about your property. Which provision applies to your circumstances is a question for your accountant or tax agent.
What goes wrong
The errors we are asked to correct are almost never errors of judgement about value. They are procedural, they are made before anyone thinks to involve a valuer, and they cost more to fix than to avoid.
Using the purchase price as the cost base. Where s118-192 applies, the deemed 2018 market value replaces the 2012 purchase price. Using the purchase price on a rising market understates the cost base and overstates the gain — an error against the taxpayer, and still an error.
Guessing the first income-producing date. The lease commencement, the first rent receipt and the date the agent was engaged are often different days in different months. The valuation date follows the provision, and the accountant should nominate it in writing.
Ignoring a room let earlier. Renting one room before the whole dwelling was let can bring s118-190 apportionment into play on an earlier date. Tell the valuer about it rather than discovering it in an audit.
Sources
- Income Tax Assessment Act 1997 — Consolidated Act, AustLII
- Market valuation for tax purposes — Australian Taxation Office — the eight valuation fundamentals
- Australian Property Institute — Professional Practice Standards and the CPV designation
This page is general information about how valuations are used for tax purposes. It is not tax advice. Your accountant or tax agent should confirm which provision applies to your circumstances.
Written and reviewed by
Jarrad Khoury
Head of Valuations at Asset Valuations Group, where he leads the Business Valuation Services division. Over 10 years in property and business valuation. Registered Valuer in Queensland (Not Limited), Licensed Valuer in Western Australia (Not Limited), CPV through the Australian Property Institute (Not Limited), CPV and CBV through the Australian Valuers Institute, and Registered Business Valuer through the AIBB.
Last reviewed 15 September 2026 · About the practice · Editorial policy
FAQs
Main residence exemption questions, answered.
The questions clients, accountants and solicitors ask us most often.
What date should the valuation be effective from?
The date the dwelling was first used to produce income — typically the first day of the first lease, or the day a home office or granny flat began earning. Your accountant will confirm the date; we value to it.
Does s118-192 apply to every rented former home?
No. It applies only where the dwelling would otherwise have been fully exempt and was first used to produce income after 20 August 1996. Where it does apply, the deemed market value acquisition is mandatory, not optional.
Can you value a property that has since been renovated?
Yes. We value the property as it stood at the effective date, using historical evidence — photographs, plans, council records — to describe it before the works.
Do I need a valuation if I only rented one room?
Usually yes, plus an apportionment. Section 118-190 reduces the exemption by reference to the floor area and the period of income-producing use, and both need to be evidenced.
How much does a main residence valuation cost?
Standard metropolitan residential valuations start from $440 incl. GST. Apportionment work on unusual configurations is quoted individually.
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